Greenwood–Hercowitz–Huffman preferences are a particular functional form of utility developed by Jeremy Greenwood, Zvi Hercowitz, and Gregory Huffman, in their 1988 paper Investment, Capacity Utilization, and the Real Business Cycle.
[1] It describes the macroeconomic impact of technological changes that affect the productivity of new capital goods.
The paper also introduced the notions of investment-specific technological progress and capacity utilization into modern macroeconomics.
Often macroeconomic models assume that agents' utility is additively separable in consumption and labor.
GHH preferences might instead have a form like: where now consumption and labor are not additively separable in the same way.
Moreover, as the marginal rate of substitution is independent of consumption and only depends on the real wage, there is no wealth effect on the labor supply.
Using preference without a wealth effect on the labor supply might help to explain the aggregate economic behavior following news shocks,[2] and government spending shocks.
[4] GHH preferences are not consistent with a balanced growth path.
Jaimovich and Rebelo proposed a preference specification that allows scaling the short-run wealth effect on the labor supply.